At The Cannabis Law Group, our Los Angeles legal team has noted that while it is getting markedly easier for many marijuana business clients and related ancillary firms to obtain insurance coverage, it’s still a hugely under-served market, particularly given its vulnerability to litigation on several fronts.

Almost all businesses face some type of legal threat at some point or another, which is the whole point of why they buy insurance. But firms that deal in marijuana aren’t “just any other firm.”

Types of Lawsuits Legal Marijuana Businesses May Face in Coming Years

Cannabis firms can help shield themselves from litigation by hiring a dedicated law firm with extensive experience in the industry to help them build every facet from the ground up. It’s important to have all the proper permitting, lease contracts, partner agreements and meticulous protocol in place for everything – product testing/quality control, labeling, marketing, hiring, transport, financial management/bookkeeping – even the condition of your floors.

Although a tort can be raised under a wide range of circumstances, we see a few more likely on the horizon for the cannabis industry.

Product liability Lawsuits

Some attorneys have referred to this as a potentially “catastrophic risk” for the industry were one case or a class action case to prevail. There have thus far only been a trickle, but most legal analysts opine that is likely to increase alongside the market expansion, more retailers, wider access and greater public awareness. Whether or not licensed cannabis operators truly appreciate the risk of a consumer class action tort case remains to be seen. What we see as the most likely major product liability claims would be those involving cannabis products that are:

• Adulterated;
• Contaminated;
• Mislabeled.

Plaintiffs will have a stronger case if there there is some violation of state regulation (and let’s be honest – the opportunity is ample). Businesses are already struggling to comply. One type of product liability claim would be something brought under California consumer protection laws.

Medical Liability/Malpractice Claims

Although recreational marijuana is legal, medicinal marijuana, recommended and overseen by the care of a physician, are still attainable (though less common). What we might see is an uptick in doctors prescribing marijuana for an expanded array of ailments. Some hospitals report seeing an uptick in cases of a condition called cannabis hyperemesis syndrome, which is basically repeated vomiting due to marijuana use and its impact on the digestive tract (the opposite effect of what cannabis typically has on the brain). Doctors who prescribe cannabis – and even those who don’t, but may see its effects in emergency rooms – may need to become more familiar with these kinds of ailments.

Doctors too may be unaware they need additional coverage if they’re going to prescribe cannabis – but it’s a good idea.

Especially where insurance is difficult to secure, the smartest thing cannabis businesses, physicians, landlords and ancillary firms can do is to preempt these types of claims by ensuring full legal compliance before a claim arises. A cannabis lawyer can help.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, ancillary companies, patients, doctors and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

Insurers remain leery about covering California cannabis industry, July 3, 2019, By Cheryl Sarfaty, North Bay Business Journal

Although it has become easier this year for cannabis companies to find insurance coverage than ever before, Los Angeles marijuana business attorneys recognize the industry is still very under-served.

Most cannabis insurance primarily focuses on product liability coverage, as explained in a recent article by Insurance Journal. However, there are a number of other potential liabilities too for which cannabis companies likely could use insurance coverage. That’s an opportunity for insurance companies, but of course many are keenly aware of the risk, given federal laws pertaining to money laundering when doing business with any enterprise that derives income from illegal sale of cannabis.

Insurers interested in entering the cannabis business market would do well to enter the various cannabis industry associations to get educated on the intricacies of the cannabis industry.

Cannabis Insurance Coverage Gaps

Cyber coverage for cannabis companies is one area that could use some additional coverage. That’s because cannabis companies store a significant amount of customer information in their databases. Substantial amounts of information are also stored in California’s track and trace system, which keeps tabs on marijuana inventory throughout the supply chain, from seed to sale. Potential for data loss is very real, but nonetheless, Los Angeles marijuana business lawyers recognize companies have a legal duty to protect that data. (Our cannabis attorneys in Southern California can help companies with their business plans for the best systems to protect this data and shield your firm from liability.)

Another potential liability – one few licensed cannabis companies likely have considered up to this point – is class action litigation. This is more likely to be an issue raised if cannabis is mislabeled or contaminated or in some way adulterated but not indicated. If cannabis firms are in some way (knowingly or not) violating state regulations, that could open the doors to class action too. This is especially more likely given that California cannabis rules are so onerous, and many operators find it difficult to be fully compliant (another reason for a qualified Los Angeles marijuana business attorney to be on board).

Doctors too may increasingly look for coverage for cannabis-related wrongful acts, risks or malpractice. Five years ago, physicians likely would not have needed separate coverage for this. Now, increasingly, it’s not a bad idea. Even physicians who aren’t commonly in the practice of recommending medical marijuana may still be seeing clients who are using marijuana medicinally (prescribed or self-treated). This has to be considered when prescribing any other medications. For instance, a condition called cannabis hyperemesis syndrome, wherein patients have high levels of THC or other cannabidinoids in their system that can make them sick. Doctors in California increasingly need to be educated on it – and insured in the event of a claim against them for failing to diagnose and treat it.

Whether you are a cannabis company or doctor or insurer considering the implications of marijuana insurance coverage – or the risks of going without it – our dedicated Los Angeles marijuana attorneys can often help advise you on your rights and responsibilities.

The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 949-375-4734.

Additional Resources:

Expert Sees a ‘Strong Need’ for Insurance for Cannabis Industry, Dec. 3, 2018, By Don Jergler, Insurance Journal

More Blog Entries:

Credit Union Offering Marijuana Businesses Checking and Savings Accounts, Dec. 1, 2018, Los Angeles Marijuana Business Lawyer Blog

A New Option for Protecting Cannabis Business Assets A series of recent moves within California’s insurance industry indicate that cannabis business owners may be better able to protect their assets from future acts of force majeure. The Insurance Journal reports that, for the first time, a carrier admitted to the California Department of Insurance has filed to provide coverage to legal cannabis businesses within the state. Other carriers have expressed the desire to file with the Department to offer similar products to the legal cannabis industry. Standardized insurance forms for the cannabis industry may also be available in the very near future. State Insurance Commissioner Dave Jones is actively studying the needs of the cannabis industry and how the Department can help remove certain barriers to coverage. At a public hearing in Los Angeles, Jones spoke with business owners about obtaining access to coverage, the availability of affordable coverage, and critical gaps in coverage. This is a particular problem for businesses lacking adequate liability insurance in California’s liberal civil lawsuit climate, which tends to favor plaintiffs’ judgments. Many business owners reported that they were able to access worker’s compensation coverage, but directors and officers coverage was reportedly more difficult to come by. The Many Ways Cannabis Business Owners Can Protect Their Assets Even within the framework of existing regulations and restrictions, business owners can protect their assets in many different ways. Insurance coverage may be available for buildings and structures, as well as company vehicles. Alternative financial services are available to cannabis businesses, and this can preclude the need to operate an entirely cash-based business. It also reduces the risk of violent crime faced by any business with large reserves of cash. As the insurance market adapts, expands, and reforms itself to meets the needs of the legal recreational cannabis market, business owners must be prepared to access all necessary insurance services. It is also critical for business owners to find other means of protecting their assets when insurance coverage is not available. A cannabis business planning attorney can help business owners find and access the right tools to protect their businesses. The Los Angeles Cannabis Law Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 949-375-4734. Additional Resources: Admitted Carriers, CanaBOP Coming to California’s Cannabis Industry, October 20, 2017, by Dan Jergler, Insurance Journal More Blog Entries: How California Marijuana Growers Are Rebuilding Their Businesses After Devastating Wildfires, October 21, 2017, by Cannabis Law Group